On January 1, 2018, Allgood Company purchased equipment and signed a six-year mortgagenote for $186,000 at 15%. The note will be paid in equal annual installments of $49,148, beginningJanuary 1, 2019. Calculate the portion of interest expense paid on the third installment. (Roundyour answer to the nearest whole number.) A) $21,048 B) $164,752 C) $27,900 D) $49,148

The correct answer is A: interest = $21048

Explanation:

An amortization schedule is a complete table of periodic loan payments, showing the amount of principal and the amount of interest that comprise each payment until the loan is paid off at the end of its term. While each periodic payment is the same amount early in the schedule, the majority of each payment is interest; later in the schedule, the majority of each payment covers the loan's principal.

Each payment is the same ($49,148), but the proportions of interest and capital pay changes. The interest proportion decreases from pay to pay.

Loan = 186000

i = 15%

n = 6 years

First pay:

i=186000*0,15=27900

amortization = 49148-27900=21248

Second pay:

i = (186000-21248) * 0,15=24712

amort=49148-24712=24436

Third pay:

i = (164752-24436) * 0,15=21048

amort=49148-21048=28100

While payments progress, interest decreases and amortization increases.